• Ohio: New Budget Adjusts Current Agricultural Use Value Calculation
  • August 23, 2017 | Authors: David M. Kall; David D. Ebersole; Michelle Rood
  • Law Firms: McDonald Hopkins LLC - Cleveland Office; McDonald Hopkins LLC - Cleveland Office
  • In its agricultural overview for 2016, the National Agricultural Statistics Services of the United States Department of Agriculture informs that the agricultural industry is the largest in Ohio, with 74,500 farms taking up more than 14 million acres. Measured separately, livestock inventory, consisting of cattle, goats, chicken, sheep, hogs and turkeys, approached 100 million units, and milk production was $929 million. This constitutes a “massive food and agriculture industry,” declares farmflavor.com, a purveyor of agricultural information.

    The total value of agricultural products sold, as determined by the latest census in 2012, was more than $10 billion, which put Ohio at number 13 nationally. This figure includes crops, nursery, greenhouse, livestock, poultry, and their products.

    Ranked by harvested acres, the top crop commodities in 2016 were soybeans, with a production or sales value of $2.5 billion; corn, whose production or sales value was $1.8 billion; and hay, with a production or sales value of just over $400 million. Other key crops are wheat, tomatoes, sweet corn, peppers, apples, pumpkins, cucumbers, oats, grapes, maple syrup, and peaches.

    For property tax purposes, Ohio farmland devoted exclusively to commercial agriculture may be valued according to its current use instead of its "highest and best" potential use. Accordingly, Ohio law contains a provision that allows for the Current Agricultural Use Value (CAUV) program. This permits values to be set well below true market values, and normally results in a substantially lower tax bill for working farmers.

    Neither Ohio’s Constitution nor current law prescribes the specific method for determining CAUV values. Instead, the Ohio Department of Taxation (DOT) sets current agricultural use values for each of Ohio's soil types each year. The calculation utilizes the capitalization of net income from agricultural products, and assumes typical management, cropping, and land use patterns, and yields for given types of soils.

    The DOT takes a number of factors into account, including yield information, cropping patterns (based on the most recent five year average of crop acres harvested, which, for 2016, was 53 percent beans, 40.2 percent corn, and 6.8 percent wheat), crop prices (five year weighted average prices which yield prices of $10.91, $5.53, and $4.49 for soybeans, wheat and corn, respectively), non-land production costs, capitalization rates, cropland, woodland and pastureland values.

    In the 2017 budget, lawmakers changed the CAUV. Explaining the reforms, OhioWatchdog.org noted that the original motivation of the CAUV formula was to “give farmers a property tax break and encourage the preservation of farmland by valuing such property according to its agricultural value, rather than its market value.” According to the group, a “perfect storm of circumstances” had come together, hitting farmers “with 300 percent spikes in their property tax bills at a time when farm income dropped by 50 percent.”

    The core problem was that non-farm factors, such as appreciation of farmland values and equity buildup, were inflating the CAUV values. The reforms, which will be incorporated over six years to phase in the impact on school districts and local governments, are expected to reduce 2017 land reassessments by about 30 percent.

    Although there is “little dispute about farmers suffering tax spikes in recent years,” some suggest that these reforms are also problematic, in part because the phase-in means that not all farmers will benefit from them right away. In addition, some say that the $60 million property tax shift, from agriculture lands to residential areas, could affect homeowners disproportionately, while also reducing school districts’ funding: “If homeowners come away with a perception that they are being overly burdened due to the CAUV reforms, school districts may have a tougher time getting residents to approve tax increases in the future.”

    Nevertheless, lawmakers supported the formula changes because, as a spokesman for Ohio Senate President Larry Obhof explained, “we’re not in the business of putting family farms out of business.” Moreover, the budget legislation allocates $10 million in fiscal year 2018, and another $7 million in fiscal year 2019, to support school districts whose funding formulas were affected by the CAUV changes.

    OhioWatchdog quoted a consultant with the Ohio Education Policy Institute, who opined that “[t]he pendulum swung from one end of the spectrum to the other.” This round of reforms is a “blunt instrument that may cause unintended consequences” for public education in Ohio.